The following is an interview between Mark Mobius and Bloomberg:
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
Mark Mobius, Chairman of Templeton Asset Management Ltd., talks to Mahmoud Kassem about BRIC stocks and the bull market.
MAY 27, 2010
SPEAKERS: Mark Mobius, Chairman of Templeton Asset Management Ltd., Mahmoud Kassem, BLOOMBERG NEWS
Mahmoud Kassem, Blommberg News: Emerging market bulls have been saying this year that these countries are more resilient to the problems of slow growth and high debt facing developed markets. If MSCI Index of emerging markets has fallen more this year in terms of peak (ph) than MSCI World Index of developed shares, why are emerging markets suffering more in the sell-off (ph)? And do you think it's justified?
Mark Mobius, Chairman of Templeton Asset Management Ltd.: Personally, I don't think it's justified because the fundamentals are much better than people realize. But I'm not surprised that the pull is greater in a relatively short period of time. And the reason for that is, as you know, emerging markets have far outpaced and outperformed the developed countries. So the correction would naturally tend to be greater.
In addition, with the Greek situation, there's again been this fear that's developed in markets where people want to retreat to their home in Europe and America because that's where the big international investors are working. So it's not surprising that their markets have not fallen as much. Of course, they've fallen but not as much as original markets. But I don't think it's a situation that we remain that way. I think that when the time comes, emerging markets will recover faster and in a big way.
Kassem: Have you been buying or selling the past month when markets declined? And if so, where are you buying? Or where are you selling?
Mobius:: We've been buying because we've had net flows into our funds. And most of the buying has been in the BRIC countries, in Brazil, India, China, and Russia. But of course, we've been buying in different parts of the world, including the Middle East in Dubai, a little bit here in Egypt. It just depends on what the valuations are at any point in time.
Kassem: And are you getting more defensive or hedging anywhere?
Mobius:: No, we - despite the fact that a lot of people think we are entering into a bear market, we don't believe so. We think this is a correction in an ongoing bull market. And as long as money supply continues to surge ahead in these countries, we think that, you know, we want to be invested.
Kassem: The M3 measure of money supply in the U.S. has shrunk in the past year, signaling disinflation or outward deflation. You've referred in the past to the expansion of money supply as a key driver of emerging market asset prices. Has your view changed now that money supply seems to be turning lower?
Mobius:: I don't think the money supply's actually turning lower. The growth of money supply has slowed because they've reached the point where it's so great, the amount of money out there's so great. But don't forget the U.S. is not the only equation here. China money supply's gone up quite a lot. Euro money supply's going quite a lot. And what happened as a result of Greece is that governments around the world who heretofore would have begun to slow down substantially on their money supply growth - because you've seen inflation begin to come up - have now hesitated because they don't want the Greek situation to lead to further falls in other areas, economic falls in other areas. So they want to make sure that there's enough liquidity in the markets. So I don't think a downturn in money supply will be sustained. It would be interesting to see what the numbers are going forward.
Kassem: Do you think there's a risk of contagion in terms of the Greek -
Mobius:: Yeah, of course, psychologically, it's very nerving. You know, if you look at the CDS, credit default swap spreads, of course, Argentina is right up there. But Greece is right there with Argentina. Then you've got Portugal. You've got Spain. And only then do you get Russia, which was considered in the past to be a very risky place. But now it's considered less risky than all the other places. So you know, the fear of contagion into the developed countries is definitely there, which is why I believe that Europe and the U.S. have acted in concert to try and stem this situation.
Kassem: Has it been enough you think?
Mobius:: I think so because they - we've already had very, very high money supply in these countries. And of course, they're continuing now.
Kassem: How have the trading systems in the emerging market dealt with the volatility of recent weeks? The U.S. market of course had trouble coping with the decline on May 7th. Have you encountered any problems with liquidity to trading?
Mobius:: In some markets, we do run into liquidity - I mean, the small markets, it's a problem, but in the larger markets, no. As I mentioned, in the BRIC countries, there's not really a problem with liquidity. In fact, liquidity has increased. The volatility has increased. So it's been relatively easy to buy and sell.
Kassem: Do you see a major risk escalating from tensions in North Korea? And how is this impacting your investment strategy?
Mobius:: I think we're going to see a lot more rhetoric in northern Asia because clearly the current administration in Korea has given up on the sunshine policy that was in effect during - in the last almost decade now. So that definitely is a turning point. And that means there must be a reaction from North Korea. So I think that will begin to heat up and continue to heat up, which will of course be a concern for investors. But this can turn into a more serious situation. So I think we're going to have to watch that space carefully. And China of course plays an important role because they could do something about North Korea.
Kassem: And has what happened so far in any way influenced your investment strategy?
Mobius:: No, no, we have not reduced in Korea at all because what we were buying was relatively inexpensive. And the companies that we have in the portfolio are quite international in nature. So even if something happens in Korea, they will have substantial earnings outside of Korea.
Kassem: And finally a question on Egypt - are you increasing your investments in Egypt? You said earlier that you were.
Mobius:: We are and mainly because we have frontier funds to invest. And Egypt is one of our big frontier markets.
Kassem: And what sectors do you favor?
Mobius:: Mainly construction, telecoms, and consumer goods are the three areas.
Kassem: And has the recent debacle with Orascom in Algeria made you buy, sell, or -
Mobius:: Well, yeah, there's an opportunity to buy when you have a downturn like that.
Kassem: Right.
Mobius:: I don't think the situation in Algeria will turn out to be as serious as people believe because Algeria is interested in attracting investments. And if they have seemed to have confiscated the Orascom assets, that will not be very good for attracting investments. So I think there will be some agreements reached.
Kassem: Is that a country (inaudible)?
Mobius:: Yes, in fact, we were in Algeria three months ago, in Algeria and Libya, Morocco. Of course, Morocco, we've been in there for quite some time.
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